The Alcohol Wholesaler Registration Scheme – a fraud-prevention model for the food industry? Since October, wholesale businesses that supply alcohol have had to register with HM Revenue and Customs (HMRC) if they want to continue trading; it has also become an offence for retailers to buy alcohol from wholesalers who are not registered. The Alcohol Wholesaler Registration Scheme (AWRS) is an attempt by government to reduce alcohol fraud, which HMRC estimates at £1.3bn per year. A study published by the All Party Parliamentary Beer Group in 2012 found that up to one in five cans and bottles of beer sold in the UK is illicit, and beer smuggling alone could be costing the Treasury around £500m a year in lost duty. So how will AWRS work, what will it mean for our colleagues in the trade and what might the benefits be for the food sector? Before answering these questions, it’s worth having a brief look at how alcohol fraud occurs. There are two significant types: evasion of duty (mainly beer and wine) and counterfeiting (mainly wine and spirits). Both types of fraud enable unscrupulous retailers to undercut their legitimate competitors – even chains of retailers, such as Bargain Booze, find it impossible to compete with the prices offered by retailers who source their alcohol from the black market. There is a surprising amount of movement of beer and wine from bonded store in the UK into Europe, and vice versa – primarily by road haulage – where the alcohol has not yet attracted duty. The fraudsters use the paperwork from a genuine movement as a basis for producing forged paperwork to cover numerous other movements – although, on these occasions, the lorry-load of alcohol doesn’t leave the UK. The load is then split into smaller consignments and delivered by white van to a range of outlets – corner shops, off-licences, clubs and pubs – where it is sold to unsuspecting members of the public. Of course, these retail outlets will also purchase the same type of product from legitimate sources, so if HMRC pays a visit, they will have some genuine paperwork to show their stock came from a source where duty had been paid. After all, one can of beer looks just like any other can of the same brand. AWRS is intended to counter both types of fraud. AWRS – the scheme This went live on 1 October, and wholesalers of alcohol need to apply to be registered with HMRC before 31 December. Additionally, businesses that trade in – or retail – alcohol will need to ensure they are buying from a wholesaler that is properly registered, which can be done online. From 1 January 2016, HMRC will start work to determine whether applicants meet the ‘fit and proper’ test; although detailed guidance has not yet been published by HMRC, it has indicated that the applicant should be able to demonstrate they are a bona fide business concern – with no history of revenue non-compliance or fraud – and that the key people involved in the business have no unspent relevant criminal convictions. The business will also have to demonstrate that it is commercially viable and that there is evidence of ‘satisfactory due diligence procedures’ on their suppliers – and, where appropriate, their customers too. HMRC has estimated approximately 21,000 businesses will need to register under the scheme and that a significant number will fail the ‘fit and proper’ test. The impact on the trade The lack of detailed guidance from HMRC as to what businesses must demonstrate to achieve registration is causing concern. HMRC estimates that the scheme will cost the taxpayer £53m over the next five years, and cost businesses £9.2m in ‘one-off’ costs – and £2.6m in ongoing annual costs. This equates to a one-off cost of £457 per business and around £124 per year. These relate to ‘familiarisation with the legislation and the requirement to include the unique reference number on invoices’. HMRC makes no mention of the cost of undertaking due diligence, which – when dealing with suppliers based overseas – can be complex. There is no indication of what evidence must be supplied to demonstrate a business’s ‘commercial viability’ – only a few companies will be large enough to require auditing – and what will be the benchmark to determine commercial viability? Will companies need to provide independent verification of this, or will HMRC be making judgements based on the business’s own data? The benefits for the food sector The AWRS scheme is introducing a legal requirement for businesses to undertake adequate due diligence on their supply chain, and is starting to embed this important process within standard business practice. Hopefully, with time, it will establish clear criteria for businesses about what are satisfactory levels of due diligence, and will provide some clarity and reassurance. However, the extent of this reassurance remains uncertain. Those who engage in the buying and selling of illicit alcohol are unlikely to be fazed by the scheme. Although it introduces a criminal offence for businesses of buying alcohol from an unregistered wholesaler, the government’s regulatory impact assessment on the scheme doesn’t detail enforcement costs, stating only that this requires ‘further work’ with the Ministry of Justice. Given the scenario above, it is my view that the AWRS scheme will do little to curb illicit alcohol. There will still be those who buy from the back of a white van, asking no questions, and use the paperwork from legitimate purchases to disguise their illegal stocks. The financial pressures on businesses – particularly small businesses who do not have the purchasing power of larger enterprises – will cause some to look for the cheapest price, wherever this may be.